Gold drops as last-minute deal is seen ending U.S. debt wrangle

House of Representatives scrapped a vote on a plan

Gold fell on expectations that U.S. lawmakers will still manage to agree to lift the debt ceiling before the government’s borrowing authority lapses tomorrow even after the House of Representatives scrapped a vote on a plan.

Bullion for immediate delivery lost as much as 0.6 percent to $1,275 an ounce and was at $1,275.06 at 8:03 a.m. in Singapore. Prices dropped to $1,251.85 yesterday, the lowest level since July 10, before closing 0.8 percent higher as the negotiations stalled. Gold for December traded 0.2 percent higher at $1,276 an ounce on the Comex in New York.

After the House vote was scrapped, Senate Majority Leader Harry Reid, a Democrat, and Minority Leader Mitch McConnell, a Republican, resumed talks to end the impasse. Fitch Ratings put the U.S. on watch for a possible credit downgrade yesterday, citing lawmakers’ inability to forge a deal while reiterating that it expects the debt ceiling to be raised.

“History suggests that politicians will pull back from the abyss,” Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in an e-mailed note today. “Investors appear content to take a wait-and-see attitude to this situation.”

The House scrapped the vote last night on a fiscal plan, according to Representative Pete Sessions, chairman of the House Rules Committee. That bill would have kept the government open through Dec. 15 and suspended the debt limit until Feb. 7, 2014.

Promised Payments

Unless Congress acts, the U.S. will be operating only on cash and incoming revenues from Oct. 17. It will begin missing promised payments between Oct. 22 and Oct. 31, according to the Congressional Budget Office. The partial shutdown began Oct. 1

Gold lost 24 percent this year, heading for the first annual drop since 2000, on speculation that the Federal Reserve will slow its $85 billion in monthly debt purchases as the U.S. economy improves.

“Market reaction to a U.S. government shutdown to date has been benign,” UBS AG said in a report dated yesterday, citing expectations for an agreement for at least a temporary increase in the debt limit. “It’s likely that investors are increasingly desensitized by a series of 11th-hour resolutions.”

Silver for immediate delivery lost as much as 1 percent to $21.1611 an ounce and traded at $21.1769. Prices dropped to $20.5088 yesterday, the lowest since Aug. 9, before rallying 0.5 percent. Platinum retreated 0.3 percent to $1,379.53 an ounce, and palladium declined 0.3 percent to $705.30 an ounce.